On the future of European clothesware

William Lakin, Director General of EURATEX

The BC visited one of the region's largest conferences on the clothing and textiles industry held in Vilnius late last year, and now presents you with a view on the trade market in textiles from an EU aspect, voiced by William Lakin in his speech at the conference

Photo: A.F.I.

Today we speak of trade liberalization, globalization and the world village. Certainly if one looks at the recent track record of the European Union, this is an impression that can be gathered. The EU has virtually no non-tariff barriers in the non-textile and clothing fields, other than those that relate, justifiably, to the safety and health of the consumer. The EU will by 2005 have the lowest tariffs in the world; it will have offered 50 of the least developed countries duty and quota free access to the European market under the EBA or Everything But Arms arrangements. In textile and clothing terms, 50% of the EU's imports were duty free and 75% were also quota free by 2000. Free trade exists between the EU and EFTA countries; also between the EU and EU candidate countries, and between the EU and a number of countries on the Mediterranean rim, such as Morocco, Tunisia, Egypt, Israel etc. By 2005 all remaining quotas will have been phased out. What a wonderful free trade example to the rest of the world. And yet even the EU, the champion of free trade, continues to maintain excessive protection for its agriculture, and seems prepared to make even more concessions in other fields in order to hang on to that protection for as long as possible.

The USA too has long maintained that it is the true exponent of free trade; and yet even then, whilst running a massive annual trade deficit, that great nation still applies high tariffs on certain imports of textiles and clothing, and it also does not hesitate to take action when it believes, for political or other reasons, that parts of its industry are under threat. Recent cases are the steel measures, and agricultural subsidies. These matters have very obviously clouded the sunny Geneva skies, and brought the forward momentum after Doha to a stall. Is the world economy running into a New Great Depression, or are stock markets simply the gossip columnists of our day, using and abusing the means at their disposal to impact upon otherwise healthy economies, and soundly based fiscal and economic policies?

I was privileged to speak at this Conference a year ago, in the black days following the September 11th atrocities in the United States. It has been a long year, fertile in events, armed conflicts, and uprisings. Who would have predicted a number of those things twelve short months ago? This is why in endeavoring to speak to you today on the post Doha situation, I have to be somewhat cautious, and say that my comments are one contribution only to an ongoing debate as to the future of our industries after Doha and 2005.

However, it is a relatively optimistic contribution. And it is based upon fact. Let us here take the year 2000 as a basis for consideration, and a few facts and figures from the EU's external trade data in that year :

Imports

• Imports from all sources into the EU amounted to 68 billion euros.
• Of that total 50% entered the EU quota and duty free.
• A further 25% entered the EU quota free, and in many cases with reduced duties under the Generalized System of Preferences.
• 40% of the overall total were what I term “friendly” imports in the sense that they came from two categories of countries : future members of the EU on the one hand, and the countries of the Mediterranean area on the other with whom we are seeking to complete the greater Pan Euro Mediterranean free trade area.

There is an obvious conclusion to be drawn from those figures. It is that only 25% of our imports in the year 2000 were in fact under quota, compared with the 75%, which were not. An examination of the average amount by which those quotas were filled in the year 2000 is also of interest, since that figure amounts to 64% or less than two thirds. Conclusion, the quotas only bite on some two thirds of 25% or 15% of our imports, representing some 10 to 12 billion euros in value. Those 10 or 12 billion euros represent only 5 to 6% of total turnover in textiles and clothing in the EU. The question now is by how much that figure will grow after the end of 2004, and what will be the impact on the whole sector in terms of closures and job losses. This could then be far from the flood, which certain pessimists predict.

Exports

The next point we need to consider is the export dynamics of the present EU textile and clothing industry: again here a few facts and figures:

• Overall imports into the EU in 2001 grew by 4.00%.
• Overall exports from the EU grew by 6.40%.
• With the overall deficit more or less stabilizing at under 30 billion euros, a growth of less than 1% as compared to 2000.
• Exports of clothing products to China grew by 35% and total exports of textiles and clothing to this market, now beginning to open, totaled close to 400 million euros.

Whenever an overseas country has the courage to open its market to foreign competition, the EU industry is capable of exploiting this opening, leading to a substantial growth in exports over a period of some two to three years.

Brazil and South Korea – before the Asian crisis – are good examples of this. And, indeed, markets are opening, whether they are in the form of free trade agreements with countries such as South Africa, Chile and Mexico, or through membership of the WTO, in the notable cases of Taiwan and China. The latter countries’ duties are now close to EU levels. Second: we continue to run a balance of trade surplus with each and every developed nation in textiles and clothing which in the year 2001 exceeded 8 billion euros.

Moreover, in 2001 our overall trade balance in textiles alone was in excess of 5 billion euros. The important thing to note in these cases is that we achieve that result on developed markets not only against domestic competition, but also in face of competition from the developing nations who also export to those countries.

Since September 11

Based upon these points, I believe that it is not unfair to suggest that we have much to look forward to, which is not doom and gloom in an enlarged European Union. The question is to what extent the events since September 2001 have influenced that situation. Here we need to consider a number of items: in chronological order they are the deal with Pakistan; the Doha Ministerial Conference of the WTO; the free trade agreement with Chile; negotiations with Brazil and the impact of the US measures on steel.

Let's first turn to the deal with Pakistan - tacitly admitted as having been done to keep Pakistan in the anti-terrorist alliance. This has done some damage in terms of increased quotas, but more particularly in terms of duty free access based upon the EU's drug r�gime.

I believe that in this respect the industry felt betrayed; in terms of concessions to open the Pakistani market nothing had been achieved other than a commitment by the Pakistani Government not to introduce non-tariff barriers, of which they had none in any case, and their cosmetic duty reductions had also been programmed in and notified to the World Bank and the International Monetary Fund and were thus a fait accompli before the deal was done. There was no negotiation as such, but politics took precedence. The result has been a growth of Pakistani exports to the EU of substantial proportions.

What then of Doha?  Ministers, meeting there in November 2001, agreed as follows :

“We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and less developing country participants, also through less than full reciprocity in reduction commitments.”

Since Doha a free trade agreement between the EU and Chile has been signed. This is an example to be followed in the future, since it provides for a symmetrical reduction and removal of all tariffs and non-tariff barriers between the two parties, together with the retention of the EU's preferential rules of origin. This is the type of balanced deal which offers considerable advantages to us in the future: Chile has not been subject to textile quotas, and we as the EU enjoy an overall balance of payments surplus with Chile in excess of 100 million Euros. This is an excellent platform indeed. And it is a model to be followed in future agreements. It is in fact the kind of arrangement we are attempting to engineer through the bilateral textile deal with Brazil, the object of which, on our side at least, is to get rid of a range of Brazilian non-tariff barriers, to obtain standstill commitments on their current applied levels of duties, and to obtain an undertaking that tariff dismantling within the framework of the future free trade Agreement with Mercosur will occur earlier and more symmetrically than might otherwise be the case.

Lithuanian context

Now, this leads me to the final and logically important question for you here in Lithuania: where does all this leave you? It will be evident that there is no simple answer to such a complex question. Each company has its own strategy, and also has its own specific product type. It may be subcontracting to a greater or less extent, marketing its own products in its own right, or be a fully owned subsidiary of a group from outside the country. All I can seek to do then is to generalize, with the reservation on each generalization that it may not affect any individual company in the way that the generalization would seem to appear.

I think that it would be wrong here to start talking about market trends. I have no ability to make any attempt to define them. What we have to do then is to look at the present trade situation and try to draw some first conclusions from it. The indications I will provide all concern EU trade in the year 2001.

The first pointer we have to use is that Lithuania is highly dependent for its exports on the European Union market. Our figures show that no less than 82% of your exports were directed to the EU in 2001. We can then use the large EU market with total imports of over 70 billion euros as a good reference point.